A historic 2025 tax debate formally kicked off this week with the House Ways and Means committee convening for the first time this year to begin what will be a complex, arcane and wide-ranging process that could take months to resolve.
But on day one inside the cavernous hearing room that is set to be an epicenter of Washington’s tax conversation in coming months, much of the first-day focus on Tuesday was on an issue well-known to pretty much every taxpayer: the child tax credit (CTC).
“The last thing families need is to see Washington slashing their child tax credit in half,” committee chair Jason Smith said, in one of many mentions of the topic.
The Missouri Republican highlighted how the 2017 Tax Cuts and Jobs Act raised this popular annual credit from $1,000 to $2,000, but will expire at the end of the year if Congress takes no action.
The CTC is not expected to be a major point of contention in the coming negotiations. But it is part of a case Smith is making — in part to spur his GOP colleagues toward quick action — that a tax deal is needed quickly, because of provisions that could help a variety of interested parties from families to corporations.
The tax-writing chairman held a press conference on Tuesday that focused on the impact on manufacturers in the coming tax effort.
The move to offer focus early on the popular credit was also seemingly designed to highlight an area of possible bipartisan agreement. Democrats have long supported the credit and spearheaded their own temporary expansion in 2021 when they controlled the levers of power in Washington.
But for families watching closely, confirmation of an extension could be slow in the offing. Any rewriting of that corner of the tax code is likely to remain at the whims of what could be a drawn-out process in other areas. Some hope to iron out the issues in a few months’ time, but others expect it could take the entire year.
Those issues are often politically knotty — and in some cases, less well-known — covering areas such as corporate and individual rates, corporate depreciation schedules, state and local tax (SALT) deductions, and many more.
And that’s not to mention paying for what could be a multi-trillion-dollar package.
Smith’s Democratic counterpart on the committee is Rep. Richard Neal of Massachusetts. He used his opening time on Tuesday to focus on the national debt and an overall Trump tax agenda that could add trillions in new red ink.
But Neal and other Democratic colleagues also seemed intrigued by the child tax credit’s prominence and often returned to the topic, in part to highlight the Democratic party’s long history with the topic.
Smith, meanwhile, continues to delicately navigate the debt and deficits issue and won’t pledge to have any final bill be fully paid for. Instead, he says he will look at “the complete fiscal health” of the US, including possible revenues from tariffs.
Whether the child tax credit, which gives an annual break to families with qualifying children, becomes an issue that moves lawmaker votes remains to be seen. But it’s proven to be an issue that has scrambled some partisan allegiances in recent years.
Vice President-elect JD Vance took a notable stand on the issue during the campaign, calling for an expansion last August of the credit to $5,000 annually. President-elect Trump has declined to weigh in but, according to aides, considered throwing his support behind “a significant expansion” during the campaign.
Democrats have long pushed for an expansion and, under the 2021 American Rescue Plan signed into law by Joe Biden, the child tax credit was temporarily increased to $3,600 for every child in the household under 6. It was an effort pushed by Democrats but with Republicans opposing the bill.
The issue has long been pushed by progressives as a means to expanding the government’s social safety net. It’s also popular among at least some Republicans who, like Vance, highlight its focus on encouraging families.
“The child tax credit promotes the flourishing of families,” said Margaret Marple, a mother from Virginia, on Tuesday. She was called by Republicans this week as a witness during Tuesday’s hearing and focused almost exclusively on the credit in her remarks.
But, to be sure, there are clear limits to any chances of bipartisan agreement on the issue.
Some Democratic representatives on Tuesday, such as Linda Sanchez of California and Terri Sewell of Alabama, outlined a Democratic position during their remarks of making the credit refundable and expanding it above its current $2,000 level.
It’s a position many Republicans have declined to embrace, Vance’s 2024 campaign proposal notwithstanding. Smith and others often talk simply about keeping the credit at current levels.
The ups and downs of the credit in recent years have had a significant impact on families, with the child poverty rate hitting a historic low of 5.2% in 2021 during the highest level for the credit. Food insufficiency among low-income families dropped by 25% in the era as well.
The larger tax effort will face many tests in the months ahead. Few expect sustained bipartisanship, even amid the early focus on the child tax credit, given the hyper-partisan congressional reconciliation process to come.
“I think we’re learning a lot about the Republican playbook today,” Lindsay Owens, the executive director of the left-leaning Groundwork Collaborative, said in an interview Tuesday.
She noted that Republicans at Tuesday’s hearing largely seemed to shy away from defending the centerpiece of the bill of extending the individual tax cuts that will heavily benefit those at the upper end of the income spectrum.
She described this week’s focus on the child tax credit as “a kind of lure for getting what they really want, the big fish, which is the tax breaks for the wealthy.”
Trump himself has meanwhile offered over dozen different tax promises during the campaign. More recently, he has reiterated his desire for at least some of them, like no taxes on tipped income, to be included in any deal.
The overall costs are already giving budget-watchers and some conservative Republicans heartburn.
The non-partisan Committee for a Responsible Federal Budget estimates that simply extending Trump’s 2017 tax cuts without any offsets would not pay for themselves; the Congressional Budget Office has said the tab could be $3.7 trillion in additional debt between now and 2034 unless the costs are offset.
And divisions among even Republicans were on display in this week’s hearing. Republican leaders continue to be split on the question of whether to try and move on taxes quickly — perhaps at soon as April alongside other issues — or break it off into a second bill later this year as part of a so-called two bill strategy.
Rep. Smith has been vocally calling for a single bill and repeated his ask Tuesday. He said “Congress must act swiftly,” and Congress can’t “can’t provide tax relief at the 11th hour” just before these various provisions are set to expire.
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance’s Rachelle Akuffo, Rick Newman, and Ben Werschkul bring you a unique look at how U.S. policy and government affects your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
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